Compliance September 26, 2016

Company Stock Registration Not Necessarily Required With Brokerage Window

The SEC says whether offering a brokerage window in a 401(k) through which investments in employer securities can be made involves an offer of employer securities requiring Securities Act registration depends on the extent of the plan sponsor’s involvement.
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The Securities and Exchange Commission (SEC) Division of Corporate Finance issued a Compliance and Disclosure Interpretation (CDI) saying a 401(k) plan sponsor that does not offer an employer securities fund in the plan but offers a brokerage window through which investments in employer securities can be made does not have to register an offer of employer securities if no attempt to direct investments in employer securities is made.

According to the CDI, whether this situation involves an offer of employer securities requiring Securities Act registration depends on the extent of the employer company’s involvement.

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In Release 33-4790, the SEC discussed whether registration is required for employer securities offered to employees through a stock purchase plan. That release framed the question as whether there is an “attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value” within the meaning of Securities Act Section 2(a)(3), the CDI noted. The SEC said that a determination of whether registration is required turns on the degree and type of participation by issuers or their affiliates in the particular program. In the context of an open market stock purchase plan, it said that registration would not be required if all communications of a soliciting character are furnished by or in the name of a broker, and the issuer or affiliate does no more than: 1) announces the existence of the plan; 2) makes payroll deductions; 3) makes names of employees available to the broker; and 4) pays no more than its expense of payroll deductions and reasonable fees and expenses for commissions, bookkeeping and custodial services.

In the context of providing a self-directed brokerage window in which plan participants could trade in employer securities with employee contributions, where the employer company and the 401(k) plan do no more than describe the self-directed brokerage window as part of the investment alternatives under the 401(k) plan, make payroll deductions, and pay administrative expenses not in any way tied to particular investments selected by employees and take no action to draw employees’ attention to the possibility of investing in employer securities through the brokerage window, the staff would not consider the employer company to be offering its securities to its employees for purposes of Securities Act registration.
Data and Research September 26, 2016

HSAs Can Help Employers Rein In Medical Costs

A study shows that employees in high-deductible health plans are foregoing care because of the cost, and this could result in more catastrophic and disability claims.

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More and more employers are offering high-deductible health plans, but research suggests some employees lack the knowledge needed to understand their benefits and take full advantage of them.

Even though the number of employers offering high-deductible health plans (HDHP) seems to be on the rise, three out of five employers don’t offer a health savings account (HSA) alongside these benefits, according to research by The Guardian Life Insurance Company of America. The company adds that “this is especially true of businesses with fewer than 50 employees—a segment that accounts for nearly 30% of all working Americans.”

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The study also suggests that employees with HDHPs require “more support and education in the workplace to understand their options and to mitigate longer-term health risks.”  

A health savings account (HSA) offered in conjunction with an HDHP enables employees to set aside pre-tax dollars to cover out-of-pocket medical expenses. This is important to note considering the rising costs of health care and research that indicates employees have trouble understanding their employer-sponsored benefits.

Employers may also contribute to their employees’ HSA to provide a base level of funding. However, Guardian’s study notes that even when employees have access to HSAs, many are unsure of how they work or how to fully utilize them.

According to Guardian, three in five workers are unable to pay a $3,000 out-of-pocket medical expense. Faced with such an expense, the study found, 37% would have to make a deal with the provider to pay over time, 34% would have to put the bill on a credit card, 9% would ask for a loan from friends/family, and 6% would take a bank loan.

In light of rising out-of-pocket costs, several employees reported that they did one of the following in the past year: skipped a doctor visit, delayed a recommended procedure or surgery, failed to fill a prescription, or avoided a blood test or X-rays.

“The study reveals a correlation between high out-of-pocket medical costs and delaying or ignoring medical care,” says Dave Mahder, vice president and chief marketing officer of group and worksite markets at Guardian Life. “HDHPs help employers rein in medical costs, but potentially at the risk of higher catastrophic medical and disability claims in the long term. Employers offering HDHPs can help employees fund out-of-pocket expenses through health savings accounts and supplemental health benefits, but there’s still room for improvement.”

These findings are from Guardian’s “A Crack in the Foundation,” the first set of findings from the fourth annual Guardian Workplace Benefits Study. The full report can be found online here.

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